On 24 July 2026, China’s Ministry of Finance and State Taxation Administration issued new rules on how Chinese tax residents are taxed on offshore trusts. From China’s point of view, a trust set up under Australian law is an offshore trust. Families with members in mainland China who use an Australian family trust or testamentary trust should understand the new rules.
The main features
- Putting assets into a trust is a taxable event. When a Chinese tax resident transfers property into an offshore trust, it is treated as a sale at market value. Individual income tax of 20% applies to the gain.
- Trust income can be taxed each year. For trusts funded by a Chinese tax resident, trust income, and in some cases income of companies the trust controls, may be attributed to that person every year, even if nothing is distributed.
- The real contributor counts. The rules look at who actually provided the property, not just the person named as settlor in the trust deed.
- Distributions to Chinese residents are taxed. Where a trust is funded by a non-resident, Chinese tax residents who receive distributions of trust income are taxed on them. Loans, free use of trust property and similar benefits may be treated as distributions.
- Moving residence and death have consequences. A change of tax residence or the death of the person who funded the trust can trigger further tax events.
- Foreign tax credits are available for qualifying foreign taxes paid on the same income.
Why Australian families are affected
Common situations we see include:
- parents living in China who send money to Australia to buy property in a family trust for their children;
- Australian family trust deeds that list grandparents or relatives in China as beneficiaries;
- an Australian Will that creates a testamentary trust with a child or grandchild living in China;
- a family member who moves between Australia and China and changes tax residence.
Each of these may now have Chinese tax consequences, in addition to Australian tax.
Practical steps
- Map tax residence. Work out which family members are Chinese tax residents, and who funded each trust.
- Review beneficiary classes. Consider whether relatives in China need to be beneficiaries at all.
- Keep records. Record the source of every contribution and every distribution. Good records will be essential if questions are asked in either country.
- Plan Wills with residence in mind. Where a beneficiary lives in China, consider whether a direct gift, a fixed trust or another structure suits them better than a discretionary testamentary trust.
- Get advice in both countries. The Australian structure and the Chinese tax position need to be considered together.
Chua Tan Associates advises Chinese-Australian families on trusts, Wills and succession, and works with advisers in mainland China and Hong Kong. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice. The measures described are proposals and may change before they become law.
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